ITO 14(1)(1), Mumbai V. M/S APEX FURNACES PVT LTD., Mumbai

ITA 2610/MUM/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 4432 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-10-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 26-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Accommodation entries
• Section: 69C; 143(3); 143(1); 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH SMC , MUMBAI BEFORE SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER ITA NO . 2610/MUM/2019 (A.Y: 2009 - 10 ) INCOME TAX OFFICER 1 4(1)(1 ) ROOM N O. 431, 4 TH FLOOR AAYAKAR BHAVAN M.K. ROAD, MUMBAI - 400 020 V . M/S. APEX FURNACES PVT. LTD., 206, KRISHNA BHAVAN GOVANDI STATION ROAD, DEONAR MUMBAI 400 088 PAN: AAAC6001A (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE DEPARTMENT BY : AMRITA SINGH DATE OF HEARING : 20.10.2020 DATE OF PRONOUNCEMENT : 23 .10.2020 O R D E R PER C. N. PRASAD (JM) 1. THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 21 , MUMBAI [HEREINAFTER IN SHORT LD.CIT(A)] DATED 28.01.2019 FOR THE ASSESSMENT YEAR 2009 - 10 . THE ONLY GRIEVANCE OF THE REVENUE IN ITS APPEAL IS LD.CIT(A) ERRED IN RESTRICTING 2 ITA NO.2610/MUM/2019 (A.Y: 2009 - 10) M/S. APEX FURNACES PVT. LTD., THE DISALLOWANCE OF PURCHASES TO 12.5% AS AGAINST THE ENTIRE PURCHASES DISALLOWED AS NON - GENUINE/BOGUS BY THE ASSESSING OFFICER . 2. BRIEFLY STATED THE FACTS ARE THAT, THE ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURER OF INDUSTRIAL FURNACES, FILED RETURN OF INCOME ON 30.09.2009 FOR THE A.Y. 2009 - 10 DECLARING INCOME OF . 9,76,710 / - AND THE RETURN WAS PROCESSED U/S. 143(1) OF THE ACT. SUBSEQUENTLY, ASSESSING OFFICER RECEIVED INFORMATION FROM THE DGIT (INV.,), MUMBAI ABOUT THE ACCOMMODATION ENTRIES PROVIDED BY VARIOUS DEALERS AND ASSESSEE WAS ALSO ONE OF THE BENEFICIARY FROM THOSE DEALERS. THE ASSESSMENTS WERE REOPENED U/S. 147 OF THE A CT BASED ON THE INFORMATION RECEIVED FROM DGIT(INV.) MUMBAI, THAT THE ASSESSEE HAS AVAILED ACCOMMODATION ENTRIES FROM VARIOUS DEALERS WHO ARE SAID TO BE PROVIDING ACCOMMODATION ENTRIES WITHOUT THERE BEING TRANSPORTATION OF ANY GOODS. IN THE REASSESSMENT P ROCEEDINGS, THE ASSESSEE WAS REQUIRED TO PROVE THE GENUINENESS OF THE PURCHASES MADE FROM VARIOUS PARTIES REFERRED IN ASSESSMENT ORDER. IN RESPONSE, A SSESSEE SUBMITTED THAT THE GOODS PURCHASED ARE USED IN MANUFACTURING OF FURNACES AND THUS BECOME PART OF FINAL PRODUCT. ASSESSEE VIDE LETTER DATED 02.09.2016 FURNISHED COPIES OF DETAILS OF PURCHASES & CORRESPONDING SALES, COPY OF LEDGER ACCOUNT OF THE SAID 3 ITA NO.2610/MUM/2019 (A.Y: 2009 - 10) M/S. APEX FURNACES PVT. LTD., PARTIES AND SUBMITTED THAT THE PURCHASES MADE ARE GENUINE. ASSESSEE FURTHER SUBMITTED THAT THE PAYMENT S ARE MADE THROUGH ACCOUNT PAYEE CHEQUES AS SUCH CONTENDED THAT ALL THE PURCHASES ARE GENUINE. HOWEVER, PARTIES WERE NOT PRODUCED BEFORE THE ASSESSING OFFICER . 3. NOT CONVINCED WITH THE SUBMISSIONS OF THE ASSESSEE THE ASSESSING OFFICER TREATED THE PURCHASES AS NON - GENUINE AND HE WAS OF THE OPINION THAT ASSESSEE HAD OBTAINED ONLY ACCOMMODATION ENTRIES WITHOUT THERE BEING ANY TRANSPORTATION OF MATERIALS AND THE ASSESSEE MIGHT HAVE MADE PURCHASES IN THE GRAY MARKET. IT IS THE FINDING OF THE ASSESSING OFFICER TH AT THOUGH ASSESSEE CLAIMS THAT THE PURCHASES OF GOODS FROM THE PARTIES WERE GENUINE AND WERE USED IN MANUFACTURING PROCESS THE CLAIM OF THE ASSESSEE THAT THE SAID GOODS WERE PURCHASED AND THAT TOOLS FROM THE PARTIES IS NOT ESTABLISHED. THEREFORE, ASSESSI NG OFFICER TREATED ENTIRE PURCHASES OF . 2,45,696 / - AS NON - GENUINE AND ADDED TO THE INCOME OF THE ASSESSEE. ON APPEAL THE LD.CIT(A) CONSIDERING THE EVIDENCES AND VARIOUS SUBMISSIONS OF THE ASSESSEE RESTRICTED THE DISALLOWANCE TO AN EXTENT OF 12.5% OF THE NON - GENUINE PURCHASES. 4 ITA NO.2610/MUM/2019 (A.Y: 2009 - 10) M/S. APEX FURNACES PVT. LTD., 4. INSPITE OF ISSUE OF NOTICE NONE APPEARED ON BEHALF OF THE ASSESSEE NOR ANY ADJOURNMENT WAS SOUGHT BY THE ASSESSEE. THEREFORE, I PROCEED TO DISPOSE OFF THIS APPEAL ON HEARING LD. DR ON MERITS. 5. LD. DR VEHEMENTLY SUPPORTED THE ORDERS OF THE ASSESSING OFFICER. 6. HEARD LD. DR , PERUSED THE ORDERS OF THE AUTHORITIES BELOW. ON A PERUSAL OF THE ORDER OF THE LD.CIT(A), I FIND THAT THE LD.CIT(A) CONSIDERED THIS ASPECT OF THE MATTER ELABORATELY WITH REFERENCE TO THE SUBMISSIONS OF THE ASSESSEE A ND THE AVERM ENTS IN THE ASSESSMENT ORDER AND FOLLOWING THE DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT V . SIMIT P. SHETH [356 ITR 451] RESTRICTED THE DISALLOWANCE TO 12.5% OF THE NON - GENUINE PURCHASES. WHILE HOLDING SO, THE LD.CIT(A) OBSERVE D AS UNDER: - I HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BY THE APPELLANT. IT IS SEEN FROM THE FACTS AVAILABLE ON RECORD THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY AND ENGAGED IN THE BUSINESS OF BAKERY PRODUCTS PARTICULARLY CAKES A ND CONFECTIONARY ITEMS. THE ASSESSEE FILED RETURN OF INCOME ON 30.09.2009 DECLARING TOTAL INCOME OF RS 9,76,710/ - . SUBSEQUENTLY, THE CASE WAS RE - OPENED AFTER OBTAINING NECESSARY APPROVAL FROM HIGHER AUTHORITIES ON RECEIPT OF INFORMATION FROM STATE GOVERNM ENT SALES TAX AUTHORITIES THAT THE ASSESSEE IS ENGAGED IN BOGUS PURCHASE OF AN AMOUNT OF RS 2,45,696/ - FROM VARIOUS TRADERS WHO WAS PROCLAIMED AS A HAWALA DEALER ISSUING BOGUS PURCHASE BILLS WITHOUT ACTUALLY DELIVERING THE PRODUCTS. THE ASSESSEE WAS ONE OF ITS BENEFICIARIES. THE A.O. ISSUED VARIOUS STATUTORY NOTICES WHICH WERE DULY SERVED ON THE ASSESSEE. THE ASSESSEE RESPONDED TWICE BUT DID NOT SUBMIT ANY DOCUMENTS IN SUPPORT OF ITS CONTENTION. THEREFORE, THE A.O. HAD A FINDING THAT THE ASSESSEE COULD NOT PROVIDE SUBSTANTIAL DOCUMENTS TO PROVE THE 5 ITA NO.2610/MUM/2019 (A.Y: 2009 - 10) M/S. APEX FURNACES PVT. LTD., TRANSACTION GENUINE, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND ANALYSING THE MATERIAL AVAILABLE ON RECORD, RE - ASSESSMENT PROCEEDINGS WERE COMPLETED U/S 143(3) R.W.S. 147 OF INCOME - TAX ACT, 1961 BY ADDING RS 2 ,45,6967 - @ 100% OF THE PURCHASE AMOUNT U/S 69C OF INCOME - TAX ACT, 1961. AGGRIEVED BY THE ADDITION, THE APPELLANT FILED APPEAL AGAINST THE SAID ADDITION RELYING ON VARIOUS CASE LAWS. 9.2 DURING THE COURSE OF APPELLATE PROCEEDINGS, THE APPELLANT SUBMITTED A PHOTOCOPY OF ONE OF ITS FRANCHISEE WHOM IT RECEIVED BAKERY PRODUCTS, LEDGER ACCOUNTS OF THE PARTIES IT SOLD ITS PRODUCTS MADE OUT OF THE ALLEGED PURCHASE AND LEDGER ACCOUNT OF THE SUPPLI ER. THE APPELLANT SUBMITTED THAT IT HAD PURCHASED NAILS, SCREWS, FEVICOLS AND OTHER HARDWARE MATERIAL FROM THE SUPPLIER AND PAID CARPENTRY CHARGES WHICH WERE DEBITED TO PURCHASE ACCOUNT AND THE SUPPLIER DEDUCTED SALES TAX ON THE ALLEGED TRANSACTION BUT DID NOT FILE SALES TAX RETURN AND THEREFORE STATE GOVERNMENT AUTHORITIES HAVE DECLARED THE PARTY AS BOGUS. THE PARTY IS NOT TRACEABLE NOW. THE APPELLANT NARRATED ITS BUSINESS MODEL AND RELIED ON VARIOUS CASE LAWS FOR DELETING THE ENTIRE ADDITION. THE APPELLAN T ALSO REQUESTED TO CONSIDER NET PURCHASE AMOUNT OF RS 2,45,696/ - (GROSS PURCHASES - SALES TAX DEDUCTED) WHILE DECIDING THE CASE. HOWEVER, IT IS OBSERVED THAT THE APPELLANT HAS NOT SUBMITTED ANY PROOF OF THE SALES TAX RECEIPTS RECEIVED FROM THE SUPPLIER AND THE APPELLANT HIMSELF HAS SUBMITTED THAT THE SALES TAX HAS NOT BEEN PAID BY THE SUPPLIERS. 9.3. THE A.O. ANALYSED THE INFORMATION RECEIVED FROM THE SALES TAX DEPARTMENT. VARIOUS CONCERNS WERE FOUND TO BE ENGAGED IN ISSUING FALSE BILLS WITHOUT ACTUAL PURC HASE/ SALE OF GOODS AND THE INFORMATION WAS THE POINT OF GENESIS FOR ENQUIRY RELATED TO POSSIBLE BOGUS PURCHASES IN A NUMBER OF CASES. THE ASSESSEE STATED THAT IT SUBMITTED NAME, ADDRESS OF THE SUPPLIER, THE LEDGER ACCOUNT, CHEQUE PAYMENT DETAILS, COPIES OF PURCHASE BILLS, SALES DETAILS ETC TO THE A.O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND THUS THE A.O. HAS NOT DISPUTED THE SALES TRANSACTION OF THE GOODS. THE ASSESSING OFFICER HAS NOT BROUGHT ANYTHING ON RECORD TO PROVE THAT THE SALES ARE BOGUS. WH EN THE SALES ARE RECOGNISED, THE CORRESPONDING PURCHASES CANNOT BE CONSIDERED AS BOGUS AND IT WILL BE A CASE OF PURCHASES FROM BOGUS PARTIES. THEREFORE, PURCHASES ARE NOT IN DISPUTE BUT THE PARTIES FROM WHOM PURCHASES ARE SHOWN TO HAV E BEEN MADE ARE DISPUT ED AND SUSPICIOUS. THUS, IT IS CONSIDERED THAT PURCHASES HAVE 6 ITA NO.2610/MUM/2019 (A.Y: 2009 - 10) M/S. APEX FURNACES PVT. LTD., BEEN MADE BUT FROM BOGUS PARTIES. HOWEVER, AT THE SAME TIME IT IS DIFFICULT TO ACCEPT THAT THE PURCHASES SHOWN ON THE INVOICES/BILLS ISSUED BY THESE PARTIES ARE AS PER THE PREVAILING MARKET PRI CE OF THOSE MATERIALS OR HAVE ACTUALLY BEEN MADE FROM SUCH PARTIES AND MIGHT HAVE BEEN PURCHASED IN THE GREY MARKET. AS THE APPELLANT HAS NOT PLACED ANY EVIDENCE ON RECORD THAT THE GOODS WERE PURCHASED FROM THE ABOVE PARTIES AT ARMS' LENGTH PRICE, THIS WOU LD INDICATE THAT THE PURCHASES WERE MADE FROM THE OPEN MARKET WITHOUT INSISTING FOR GENUINE BILLS AND IN SUCH CASES THE SUPPLIERS WOULD BE WILLING TO SELL AT A MUCH LESS RATE AS COMPARED TO THE RATE THAT THEY WOULD HAVE CHARGED OTHERWISE, CERTAINLY GOODS M UST HAVE BEEN PURCHASED FROM THE GREY MARKET THEREFORE THE PROFIT MADE BY THE ASSESSEE WOULD BE EQUAL TO THE DIFFERENCE IN PRICE OF BOGUS PURCHASES AND THE RATE AT WHICH GOODS ARE OBTAINED FROM THE GREY MARKETS. IT IS PERTINENT TO VISIT THE DECISIONS OF HO N'BLE ITAT, AHMEDABAD ON THE ISSUE. HON'BLE ITAT HELD THE FOLLOWING IN THE REFERRED CASE: - 'HAVING HEARD THE SUBMISSIONS OF BOTH SIDES, WE HAVE BEEN INFORMED THAT THE MALPRACTICE OF BOGUS PURCHASE IS MAINLY TO SAVE 10% SALES TAX ETC. IT HAS ALSO BEEN INFORMED THAT IN THIS INDUSTRY ABOUT 2.5% IS THE PROFIT MARGIN. THEREFORE, RESPECTFULLY FOLLOWIN G THE DECISIONS OF THE CO - ORDINATE BENCH PRONOUNCED ON IDENTICAL CIRCUMSTANCES, WE HEREBY DIRECT THAT THE THE ITA NO 3238 & 3293/AHD/2009 A.Y. 2006 - 07 SH. SIMIT P SHETH V ITO WD - 2(2), BRD PAGE 6 DISALLOWANCE IS REQUIRED TO BE SUSTA INED AT 12.5% OF THE PUR CHASES F ROM THOSE PARTIES. WITH THESE DIRECTIONS, WE HEREBY DECIDE THE GROUNDS OF THE RIVAL PARTIES WHICH ARE PARTLY ALLOWED.' HON'BLE GUJARAT HIGH COURT UPHELD THE ABOVE DECISION OF THE TRIBUNAL. IN THE LIGHT OF THE AFORESAID DISCUSSION AN D JUDICIAL PRONOUNCEMENTS AVAILABLE ON THE ISSUE AND MATERIALS PRODUCED ON REC ORD, I CONSIDER THAT ADDITION @ 100% OF THE ALLEGED BOGUS PURCHASE AMOUNT IS EXCESSIVE AND ADDITION @ 12.5% OF THE ALLEGED BOGUS PURCHASE AMOUNT WILL MEET THE ENDS OF JUSTICE. THE A.O. IS THE REFORE DIRECTED TO RECALCULATE THE DISALLOWANCE ACCORDINGLY. THE GROUND OF APPEAL IS THEREFORE PARTLY ALLOWED. 7. ON A CAREFUL PERUSAL OF THE ORDER OF THE LD.CIT(A) AND THE REASONS GIVEN THEREIN, I DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE 7 ITA NO.2610/MUM/2019 (A.Y: 2009 - 10) M/S. APEX FURNACES PVT. LTD., LD.CIT( A) IN RESTRICTING THE ADDITION/DISALLOWANCE TO THE EXTENT OF 12.5% OF THE PURCHASES. GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON 23 . 10 .2020 AS PER RULE 34(4) OF ITAT RULES BY PLACING THE PRONOUNCEMENT LIST IN THE NOTICE BOARD. S D / - (C.N. PRASAD) JUDICIAL MEMBER MUMBAI / DATED 23 / 10/2020 GIRIDHAR, SR.PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// BY ORDER, (ASSTT. REGISTRAR) ITAT, MUM